The FRC has today issued a draft new UK accounting standard for insurance (FRED 49: Draft FRS 103 Insurance Contracts).The proposals rationalise existing UK accounting provisions for insurance rather than establishing new requirements. They build on the current global standard while enabling UK insurance accounting practices to be retained.
Draft FRS 103 follows on from the 2012 Discussion Paper ‘Insurance Accounting - Mind the UK GAAP’ and applies to those entities applying FRS 102 that have insurance contracts; life and general insurers including mutuals and non-listed subsidiaries of listed entities. The draft Implementation Guidance accompanying draft FRS 103 is drawn from the existing FRS 27 Life Assurance and the ABI’s Statement of Recommended Practice. The FRC expects little change in accounting by entities within their scope.
Other entities which are not regulated insurance businesses but which have contracts meeting the definition of insurance will need to apply certain aspects of draft FRS 103.
Roger Marshall, Chair of the FRC’s Accounting Council said:
“The FRC aims to provide succinct financial reporting standards, which have consistency with international accounting standards unless an alternative is clearly better, reflect up-to-date thinking and developments in the way entities operate and the transactions they undertake; and balance consistent principles with practical solutions. We believe that draft FRS 103 and its accompanying Implementation Guidance does this by consolidating several standards and pieces of guidance for insurance contracts. At the same time we have been mindful of the importance of not imposing multiple changes in accounting and reporting for insurers in quick succession.”
The FRC is issuing the draft now so that it can be finalised in time for the wider mandatory implementation of UK GAAP by 1 January 2015.
The FRC stresses that these developments are distinct from the IASB’s current proposals on insurance contract accounting. The FRC will only consider international developments and their potential adoption in UK GAAP when there is much more certainty about the outcome of the IASB’s work.
Notes to editors
Draft FRS 103 uses IFRS 4 (phase 1) as a basis and includes existing requirements and accounting practices from FRS 27 Life Assurance and the ABI’s SORP. The FRC will withdraw FRS 27 and expects the SORP to be withdrawn once draft FRS 103 is effective. The draft standard can be found here. The consultation will last for three months and close on 31 October 2013.
In developing draft FRS 103 the FRC worked with a group of insurance specialists including preparers, auditors/advisors and regulators. They provided specialist advice as the project progressed and the FRC is grateful for their feedback.
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
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